The author makes good points that are too infrequently addressed. However, he leaves reinvested dividends out of the discussion, which in any discussion of the long term value of stock investing is a cardinal error.

I'll paraphrase Prof. Jeremy Siegel:

Dividends have been the overwhelming source of stockholder returns throughout time. Dividends are so powerful that they not only dwarf the importance of inflation, growth, and changing valuation levels, they dwarf all three combined. From 1871 through 2003, 97% of the total after-inflation accumulation from stocks comes from reinvesting dividends. Only 3% comes from capital gains. Put another way, if $1,000 were invested in stocks in 1871 without reinvesting dividends, the accumulation would be $243,000. If dividends were simply added to the price appreciation, that figure becomes about $333,000. If dividends were reinvested, that figure becomes $7,947,000. Put still another way, stocks with dividends reinvested return about 7% a year after inflation over the long run, but without dividends reinvested, stocks return only 4.5%.

I'd very much like to see the same article rewritten with dividends reinvested, so we can see what has actually happened through bear and bull markets with the extraordinary benefit of dividends. I'll truncate Prof. Siegel again:

Dividends are a paradoxically powerful blessing in bear markets, transmogrifying investor returns into something much better than they would have been in steadier markets over the long run. As stock prices fall more than dividends, as they almost always do, the dividend yield rises. As the higher yield scoops up a greater number of shares at their depressed price, the patient investor is lavishly rewarded when the market recovers.

Consider the great crash of 1929, in which many stocks fell more than 90%, dividends fell 55%, and those who invested on margin were wiped out. It was not until November 24, 1954 that the Dow Jones Industrial Average finally closed above the level it had reached at the bull market peak on September 3, 1929. Let’s compare how different investors did during those 25 years, including a hypothetical investor who didn’t experience the crash at all, but instead received every day the precise average return for the entire period, an imaginary investor who never experienced a bad day in the market in his life. How did he do?

Growth of $1,000 Between September 1929 and November 1954Stocks Total Return With Dividends Reinvested $4,440Same, But As Though There Had Been No Crash $2,720Bonds $2,530Stocks Ignoring Dividends $1,070

Our hypothetical investor never had the opportunity to reinvest dividends when stock prices were so very depressed. He slept well, but 25 years later he woke up 60% poorer.

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